AICB Bank Risk Practices (BKR, Malaysia) key terms

A governance model in which business units own and manage risk, a separate risk and compliance function oversees it, and internal audit provides independent assurance on the whole framework.

A board-approved document setting out the amount and type of risk a bank is willing to accept in pursuing its strategy, usually expressed as qualitative principles plus quantitative limits and triggers.

The full set of policies, metrics, limits, escalation routes and reporting that translate board risk appetite into day-to-day operating constraints across business lines and risk types.

A committee of non-executive directors that oversees the risk profile, approves risk policies within delegated authority, and advises the board on risk appetite and capital adequacy.

The senior executive accountable for the independent risk management function, with authority to challenge business decisions and direct access to the board or its risk committee.

The risk of loss because a borrower or counterparty fails to meet its contractual payment obligations on time or in full, including settlement and country transfer risk.

The likelihood, usually over a one-year horizon, that an obligor will fail to make scheduled payments; a core input to expected loss and regulatory capital calculations.

The share of exposure expected to be lost if a default occurs, after allowing for recoveries, collateral realisation, costs and the time value of money.

The estimated gross exposure outstanding at the moment a borrower defaults, including drawn balances and a credit conversion factor applied to undrawn commitments.

The percentage of an undrawn commitment, such as a revolving facility or guarantee, expected to be drawn down when a borrower defaults, used in exposure measurement.

The amount of a property-backed loan divided by the appraised value of the collateral; a higher ratio signals greater loss severity if the borrower defaults.

Techniques such as collateral, guarantees, credit derivatives and netting that reduce exposure or loss severity, recognised in capital calculations only if legally robust and operationally effective.

A legally enforceable contract allowing positive and negative exposures with the same counterparty to be offset, so that default exposure is the net amount owed.

The risk that the other side of a derivative, securities financing or trading transaction defaults before final settlement, leaving replacement cost exposure.

An adjustment to the fair value of derivative positions reflecting the possibility that the counterparty defaults; it converts counterparty credit risk into a measurable profit-and-loss charge.

A loan classified as impaired because payments are overdue beyond a set period, typically 90 days, or because the borrower is unlikely to repay in full.

The charge recognised in profit or loss to bring the allowance for credit losses to a level reflecting expected credit losses on the loan portfolio.

A forward-looking estimate of credit losses calculated as probability of default times loss given default times exposure at default, discounted to the reporting date.

A register of borrowers showing early warning signs of deterioration, such as missed covenants or declining cash flow, that receive closer monitoring and possible remedial action.

A quantitative or qualitative signal, such as falling account turnover or rising arrears, that suggests credit quality may deteriorate before default becomes apparent.

The risk of loss from movements in market prices, including interest rates, foreign exchange rates, equity prices, credit spreads and commodity prices across trading and banking books.

A statistical estimate of the maximum loss on a portfolio over a stated holding period at a given confidence level, for example a one-day 99% VaR.

The average loss in the worst cases beyond the Value at Risk threshold, giving a measure of tail risk that is more sensitive to extreme losses than VaR.

Comparing predicted risk measures such as VaR with actual profit and loss to check whether the model's assumptions and calibration remain reliable over time.

The risk that changes in interest rates reduce net interest income or the economic value of equity arising from mismatches in repricing, maturity and embedded optionality.

An estimate of how much net interest income could fall over a defined horizon under specified interest rate shocks, used to manage banking book rate exposure.

The risk of loss from inadequate or failed internal processes, people and systems, or from external events, including legal risk but excluding strategic and reputational risk.

A metric tracked against thresholds to give early warning of rising operational or other risk, such as failed trades, system downtime or staff turnover.

Documented arrangements for maintaining or restoring critical operations within agreed recovery times after disruption, tested regularly and owned by senior management.

The maximum acceptable period for restoring a business process or system after disruption, guiding investment in resilience and the design of continuity arrangements.

The risk that a third party's failure, poor performance or loss of data harms the bank's operations or reputation, managed through due diligence, contracts and ongoing monitoring.

A short-horizon metric requiring a bank to hold high-quality liquid assets sufficient to cover net cash outflows under a 30-day stress scenario.

A structural metric requiring available stable funding to exceed required stable funding over a one-year horizon, limiting reliance on short-term wholesale funding.

The risk that a bank cannot meet payment obligations as they fall due without incurring unacceptable losses, covering both funding liquidity and market liquidity.

A documented playbook setting out early warning indicators, funding sources, escalation triggers and responsibilities for managing a liquidity stress event.

Laws, rules and controls requiring institutions to identify customers, monitor transactions, keep records and report suspicious activity to the financial intelligence unit.

The process of identifying and verifying customers and beneficial owners, understanding the purpose of the relationship and assigning a risk rating before and during the relationship.

An individual entrusted with prominent public functions, or a close associate or family member, who is subject to enhanced due diligence because of higher corruption risk.

A confidential filing to the national financial intelligence unit when a bank knows, suspects or has reasonable grounds to suspect that funds are linked to crime.

Disclosing to a customer or third party that a suspicious transaction report has been or may be made, which is itself a criminal offence in most regimes.

A measure of a bank's regulatory capital expressed as a percentage of risk-weighted assets, showing how much loss-absorbing capital supports its exposures.

Exposures multiplied by regulatory risk weights reflecting credit, market and operational risk, forming the denominator of capital adequacy ratios.

The highest-quality regulatory capital, mainly ordinary shares and retained earnings after deductions, which absorbs losses while the bank remains a going concern.

A layer of common equity above the minimum requirement that can be drawn down in stress, but with automatic restrictions on distributions as it is used.

A bank's own forward-looking assessment of the capital needed for its risk profile, including stress scenarios, governance and capital planning, reviewed by the supervisor.

Analysing how a portfolio or the whole bank performs under severe but plausible scenarios, such as deep recession or funding runs, to inform capital and risk decisions.

The risk of adverse consequences from decisions based on incorrect or misused models, managed through validation, documentation, ongoing monitoring and use restrictions.

A structured record of identified risks, their owners, likelihood and impact ratings, existing controls and agreed remediation actions, reviewed periodically.

The regular production of risk information for management and the board, covering exposures against limits, trends, breaches and emerging risks in a clear, timely form.

The risk of legal or regulatory sanctions, financial loss or reputational damage from failing to comply with applicable laws, regulations, codes and internal standards.

The risk that changes in laws, regulations or supervisory expectations, or a failure to meet them, increase costs, restrict business or damage the bank's standing.

The international standard-setting body that issues frameworks on capital, liquidity and risk management which national supervisors such as Bank Negara Malaysia adopt into local rules.

The supervisor's periodic assessment of a bank's risk profile, controls and capital adequacy, which can result in additional capital requirements known as Pillar 2 add-ons.

A plan setting out options to restore viability in stress, and the supervisor's approach to winding down a failing bank without disrupting the financial system.